21-4B – Aaron Braun, the plant manager of SOS Co.’s Chicago plant, is responsible for all the plant’s costs other than his own salary.
The plant has two operating departments and one service department. The refrigerator and dishwasher operating departments
manufacture different products and have their own managers. The office department, which Braun also managers, provides services
equally to the two operating departments. A monthly budget is prepared for each operating department and the office department. The
company’s responsibility accounting system must assemble information to present budgeted and actual costs in performance reports
for each operating department manager and the plant manager. Each performance report includes only those costs that a particular
operating department manager can control: raw materials, wages, supplies used, and equipment depreciation. The plant manager is
responsible for the department managers’ salaries, utilities, building rent, office salaries other than his own, and other office costs plus
all costs controlled by the two operating department managers. The April departmental budgets and actual costs for the two operating
departments follow.
Budget
__________________________________________
Refrigerators
Dishwashers
Combined
Raw materials…………….$400,000
Employee wages,……… 172,000
Dept. manager salary……. 55,000
Supplies used…………… 15,000
Depreciation-Equip…………53,000
Utilities……………………..30,000
Building rent………………. 63,000
Office department costs…… 70,500
Totals……………………… $858,500
$200,000
80,000
49,000
9,000
37,000
18,000
17,000
70,500
$480,500
$600,000
252,000
104,000
24,000
90,000
48,000
80,000
141,000
$1,339,000
The office department’s budget and its actual costs for April follow.
Actual
_________________________________________
Refrigerators
Dishwashers
Combined
$ 375,000
174,700
55,000
14,000
53,000
34,500
61,000
75,000
$842,200
$200,000
76,800
46,500
10,000
37,000
20,700
15,000
75,000
$481,000
$575,000
251,500
101,500
24,000
90,000
55,200
76,000
150,000
1,323,200
Plant manager salary
Other office salaries
Other office costs
Totals
Budget
$80,000
40,000
21,000
$141,000
Actual
$85,000
35,200
29,800
$150,000
Required
1. Prepare responsibility accounting performance reports like those in Exhibit 21.28 that list costs controlled by the
following.
a. Manager of the refrigerator department.
b. Manager of the dishwasher department.
c. Manager of the Chicago plant.
In each report, include the budgeted and actual costs for the month and show the amount by which each actual cost is over or
under the budgeted amount.
Analysis Component
2. Did the plant manager or the operating department managers better manage costs? Explain.